The European Central Bank has been implementing a loose monetary policy that dragged yields down to record lows. Consequently, dividend-paying European stocks and related exchange traded funds (ETFs) may strengthen as more investors turn to riskier assets.
Additionally, market analysts have upwardly revised their projections on Eurozone markets as a weakening euro currency, stronger global demand and steepening yield curve help support revenue growth, potentially signaling a turn in the prolonged earnings recession.
“The case for a revival in European stocks, particularly the Continent’s many multinationals, rests in large part on expectations for improving global growth. The International Monetary Fund recently lifted its global growth forecast for 2017 to 3.5% from 3.4%. The more salient news is that global growth, which fell to 3.1% last year from 3.4% in 2015, seems to be regaining momentum,” according to Barron’s.
Investors who believe the euro currency will continue to weaken and are bullish on the Eurozone’s outlook can turn to currency-hedged ETF options, such as the the Deutsche X-trackers MSCI EMU Hedged Equity ETF (NYSEArca: DBEZ), iShares Currency Hedged MSCI EMU ETF (NYSEArca: HEZU) and WisdomTree Europe Hedged Equity Fund (NYSEArca: HEDJ). These currency-hedged Europe ETFs may outperform non-hedged Europe funds if the euro continues to depreciate against the U.S. dollar.
For more information on the European markets, visit our Europe category.